Biofuels support programs a dismal failure in Canada: MLI Report

Authors find that supporting biofuels costs at least three times the value of environmental benefits – if they even reduce greenhouse gas emissions at all.

OTTAWA, June 26, 2014 – The hundreds of millions of public dollars poured into biofuels have cost Canadians several times more than they returned in social and environmental benefits, even using the most optimistic assumptions about the resulting greenhouse gas reductions, a new study from the Macdonald-Laurier Institute finds.

The new report, by University of Guelph economics professors Douglas Auld and Ross McKitrick, finds that the cost to Canadians of biofuels support programs has been between $3.00 and $3.50 for every dollar these programs return in benefits.

Governments across the country have plunged hundreds of millions of dollars into biofuels subsidies in recent years, a trend which rapidly accelerated under the governing federal Conservatives starting in 2006. They hoped that, by forcing cars to use less gasoline, the program would create environmental benefits.

However the authors show these programs have yet to yield a useful return.

Adding up all the expenditures for the programs – which range from direct subsidies to the costs associated with inflating the price of the corn that’s used to produce biofuels – brings the total cost to $2.372 billion.

But the benefits, which accrue in the form of environmental benefits and job creation, only total up to $790 million – that is, however, assuming the project actually achieves its goal of reducing greenhouse gases.

The authors find nothing that definitively shows producing ethanol that can be mixed with gasoline doesn’t increase the amount of greenhouse gases that are produced, once ethanol is subjected to a full life-cycle analysis. If that’s the case – Auld and McKitrick say it’s impossible get a definitive answer – the cost of biofuels programs would be infinite.

“Considering that biofuels are less efficient and cars need to burn more to travel the same distance compared to regular gasoline, it is conceivable that ethanol blending actually raises overall emissions of conventional air contaminants”, the authors write.

The authors say the evidence points a clear way forward: Governments need to not only stop funding biofuels programs, they should also limit the amount of public money made available for future research on the subject.

“The most obvious recommendation to emerge from this analysis is the need to phase out the major components of current transportation biofuel policy on the grounds that the costs far exceed the social benefits and there are no realistic prospects for this situation to change”, write Auld and McKitrick.

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Douglas Auld is a professor of economics at the University of Guelph. He has conducted extensive research on the political economy of global biofuel production.

Ross McKitrick is a professor of economics and CME Chair in Sustainable Commerce and the author of Economic Analysis of Environmental Policy.

The Macdonald-Laurier Institute is the only non-partisan, independent national public policy think tank in Ottawa focusing on the full range of issues that fall under the jurisdiction of the federal government.

For more information, please contact Mark Brownlee, communications manager, at 613-482-8327 x. 105 or email at mark.brownlee@macdonaldlaurier.ca. On Twitter @MLInstitute

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